2017 - Could Bring Massive Quantum of Deals in India’s Hotels Sector

After big-bang start, year set to see 10-12 more hotel deals
in 1H2017

Mandeep Lamba, Managing Director – Hotels, JLL India

As far as hotel real estate transactions in India go, 2017 has
started off with a big bang.

After a relatively quieter 2016, this year saw the acquisition of
a majority stake in India’s foremost hotel management company, Sarovar Hotels,
by The Louvre Hotel Group (part of Jin Jiang International Holding).

This transaction alone has paved the way for 2017 to set a new
record in India’s fledgling hotel transactions’ market.

The last significant year for the hotel transaction market was
2015, in which the market witnessed over INR 24,233 million worth of trade in
existing and brownfield hotel assets – a 44.8% increase over the second-highest
year of 2012, which had witnessed nearly INR 16,730 million worth of trade.

While 2016 lacked the big bang announcements of 2015, it witnessed
five hotel-related asset transactions – some of which were undertaken to
convert the underlying assets to alternate developments.

The more significant contribution of 2016, however, has been the
commencement of major transactions which are likely to fructify in 2017.

In addition to the Sarovar deal, around 12 to 15 more hotel asset
transactions – either in the form of portfolios or single assets – are
currently in the works.

JLL Hotels’ team is confident of closing about 10 to 12
such deals in 1H 2017.

The ongoing trend in the hotel transactions market is in line with
our belief that the Indian hospitality market today is a fertile field for
strategic acquisitions.

This trend will immensely help players keen on establishing a
footprint in the Indian hospitality sector without taking the risks associated
with development of new hotels in the country.

Most hotel transactions today are occurring at replacement, or a
slight discount to replacement cost, keeping both the seller and the buyer content
with the target price.

Hotel buyers in the market today are strategic investors who
firmly believe in and understand the hotel segment’s economic cycle.

As in all business cycles, the hotels economic cycle has started
to trend upward. Performance metrics like ADR (Average Daily Rate) and
Occupancy have resumed strong growth for most hotel markets in India.

Countrywide hotel markets are performing at an all-time high with
ADRs ranging between INR 4,200 to 7,900 and Occupancy ranging between 54 to
75%.

Pune and Hyderabad are witnessing double-digit growth in
performance ranging between 12 to 18%, after being almost written off by many
hotel industry pundits.

Simultaneously, leisure and tier-II and III hotel markets are
outperforming the more mature and established commercial hotel markets of the
country.

As of date, nearly 70 to 80 hotel assets across India are
available for transacting. Acquisition of a good quality hotel asset in a
well-established hotel market is the surest way to success in this
under-serviced industry of India, which boasts of nearly 1.5 billion visitors
in 2015.

We are of firm opinion that given the new hotel supply in the
country slowing to 3 to 4% (y-o-y) over the next 3-5 years – from a high of 6
to 8% over the past five years – and the return of growth of India’s
macro-economic indicators, hotel markets will see strong performance growth in
the short-to-medium term.

2017 - Could Bring Massive Quantum of Deals in India’s Hotels Sector
Reviewed by S. Chitra
on
February 14, 2017
Rating: 5 2017 Could Bring Massive Quantum of Deals in India’s Hotels Sector After big-bang start, year set to see 10-12 more hotel deals in 1H2017...